A new approach to economic governance and growth in the Western Balkans

In its Enlargement strategy 2013-2014, the European Commission emphasised the need to address fundamentals first. Particular importance has been given to taking a new approach to the economies of the enlargement countries. In light of the global economic crisis, and in particular public dissatisfaction with the general socio-economic situation, as so visibly demonstrated by the recent protests in Bosnia and Herzegovina, we want to continue to support the Western Balkan countries in meeting the challenges of creating jobs, enhancing competitiveness and boosting growth.

None of the Western Balkan countries is a functioning market economy. Unemployment across the region is high and young people are particularly affected. Public deficits and debt levels have been increasing. The external situation is vulnerable in many countries of the region. Competitiveness is often hindered through politicisation of decisions that should be market-driven.

These problems should be addressed through a credible reform agenda coupled with ample funds from the private and public sector. Reforms of public finances and of labour market institutions and reduction of administrative burdens for businesses should be priorities. Investments in education, skills and research also need to be high on the agenda. The rule of law is particularly relevant in terms of legal certainty and investor confidence and hence, key for economic reform.

Investments will only happen if the countries improve the business climate and create the conditions:

for sustainable growth, necessary to create new jobs;

to help attract foreign direct investment;

in which businesses can be competitive and thrive; and

that will reignite the spirit of entrepreneurship and SMEs.

This is what good economic governance is about. It addresses people’s economic aspirations and is clearly in the interests of Western Balkans governments themselves. Strengthening economic governance will also help drive economic convergence between the EU Member States, which should reduce migratory pressures and help new Member States to keep their brightest and best.

How will the European Commission support work to achieve these goals?

First, macroeconomic, fiscal and financial stability needs to be ensured. The European Commission already has dialogues on annual macro-economic and fiscal programmes with all Western Balkan countries except Kosovo. We want to beef up this process and broaden its focus to key structural reforms. The Commission will base these dialogues on the countries’ National Economic Reform Programmes. The result should be to jointly agree on a set of Country Specific Recommendations to guide reforms. The Commission will, together with the International Financial Institutions, provide technical assistance to support the implementation of these recommendations. Countries will also be asked draw up action plans on public financial management. Progress here will open up the possibility of sector budget support under IPA II.

Second, the enlargement countries need sectoral reforms and investment in targeted sectors, leading to increased exports and more jobs. The Commission will invite the countries to deliver Competitiveness and Growth Programmes (every second year, starting from summer 2015). These programmes should cover the countries’ structural reform plans across sectors of most concern for improved competiveness and growth, such as transport, energy and education. They will pull together in one place all the priority reforms foreseen in the short to medium term.

Third, significant funding through IPA II will support this process and the ensuing reforms with a focus in particular on sector support. Political leadership in the countries needs to ensure coordination across government departments to make sure that they are delivering on the agreed reforms. The Commission will work with the International Financial Institutions to support financing of these reforms.

The investment needs are substantial. I was therefore delighted with last November’s agreement between European and International Financial Institutions to intensify their cooperation on key infrastructure investments including priority transport and energy projects. This will be done through the Western Balkans Investment Framework to make sure that resources flow through a single pipeline.

Regional cooperation has an important role to play in preparing reforms. The countries of the Western Balkans are highly economically integrated through the CEFTA free trade agreement. It therefore makes sense to jointly prepare certain reforms and evaluate their implementation. The Regional Cooperation Council’s South East Europe 2020 Strategy for Jobs and Prosperity in a European Perspective could be a key reference point for the Commission and the International Financial Institutions.

If all sides embrace and sustain the above new approach to economic governance, I am optimistic that it will boost the investment climate and promote the much needed job creation, growth and competitiveness in the Western Balkan countries.

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Christian Danielsson is Director General for Enlargement at the European Commission in Brussels. Under the political guidance of Commissioner Štefan Füle, he manages the Enlargement Directorate General within the framework set out in its mission statement.

Author: Christian Danielsson

Christian Danielsson is Director General for Enlargement at the European Commission in Brussels. Under the political guidance of Commissioner Štefan Füle, he manages the Enlargement Directorate General within the framework set out in its mission statement.

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